Section 32 statements: the basics

• A purchaser may terminate the contract at any time before settlement if the statement is defective, so the cost of an error falls on the vendor and, in most cases, on the practitioner.
• Claims cluster in a few areas: owner builder works under section 137B of the Building Act 1993 (Vic) (Building Act), descriptions of drainage easements and covenants, missing land information, planning and water encumbrance certificates, and unclear advice about connected services and septic tanks.
• A client intake form and a checklist before a vendor statement is signed, both used on every sale and reviewed regularly, are the single most effective controls.

This table maps each disclosure section of the SL Act to its item in the standard LIV statement, so a practitioner working on a particular item can move straight to the relevant obligation.

Section 32 of the SL Act requires a vendor selling real estate to give the purchaser certain written information before the purchaser signs the contract. This is commonly called a section 32 statement or vendor statement. In practice the vendor's practitioner prepares it and gives it to the selling agent, who provides the signed statement to the purchaser before the contract is signed.

The process can look routine, but the consequences of an error are serious. A defective statement may let the purchaser terminate the contract at any time before settlement. Understanding the statement, and applying good risk controls when preparing it, gives practitioners the best protection against a claim.

The following steps are foundational for any practitioner preparing statements for vendors:

• Read and understand the disclosure obligations in the SL Act.
• Be familiar with the form of section 32 statement that the firm uses.
• Develop and use a checklist or client intake form to collect accurate information from the vendor about the property. LPLC's Key risk checklist: sale of land questions for the vendor can be used or adapted and reviewed regularly.
• Build in quality control to reduce human error, for example having a colleague check the draft section 32 statement against the client's instructions and against the certificates obtained.

To stay current, practitioners should invest in good legal resources or current texts on Victorian conveyancing (see Further reading) and consult them regularly. Practitioners should also set aside time to read cases on vendor disclosure, and consider whether their conveyancing practices need to change to avoid the issues those cases raise.

Sections 32A to 32I of the SL Act contain the key disclosure obligations. Each obligation below is mapped to its item in the standard LIV statement.

Section 32A – item 1: financial matters

Disclosure of financial matters including rates, taxes, charges or other similar outgoings affecting the land such as council and water rates, land tax and owners corporation fees.

It is usual for this financial information to be contained in certificates attached to the section 32 statement. See section 32J about attaching certificates, notices or other documents.

Section 32B – item 2: insurance

Disclosure of the vendor’s:

• insurance that applies to the land, where the purchaser assumes risk of the property before the purchaser becomes entitled to possession or receipt of rents and profits
• owner-builder insurance.

The owner builder insurance requirements stem from section 137B of the Building Act 1993 (Vic) (Building Act).

Section 137B of the Building Act, specifies that an owner builder must not enter into a contract to sell unless they are covered by any required insurance and have given the intending purchaser particulars of the insurance.

Section 32C – item 3: land use, easements and covenants

Disclosure of easements, covenants and other restrictions affecting the land, both registered and unregistered, including a description of the restriction and particulars of any existing failure to comply by the vendor. Where the land is in a bushfire-prone area as described in section 192A of the Building Act, certain information must also be disclosed.

Drainage easements and covenants noted on title, such as a single dwelling covenant, are among the largest sources of section 32C claims. The LPLC typically sees three types of errors that reoccur.

• The first is attaching a plan or certificate that names a covenant or easement but does not contain the description the section requires, when the description or diagram sits in another document.
• The second is failing to attach a section 173 agreement recorded on the title.
• The third is the vendor failing to disclose an unregistered easement that affects the land, such as a sewer drain or drainage pipe.

Section 32C also requires disclosure of any existing failure to comply with an easement, covenant or restriction.

Clients are not always aware of easements affecting the property, and some, such as water supply or drainage easements, may be unregistered and not shown on the plan of subdivision. To reduce this risk, obtain a water encumbrance certificate and/or a sewers and drains map. For more, see the LPLC article Make it a rule to include water information certificates.

Section 32D – item 4: public authority notices

The vendor must give particulars of any notice, order, declaration, report or recommendation of a public authority or government department, or any approved proposal, directly and currently affecting the land, of which the vendor might reasonably be expected to know.

Similar disclosure applies to livestock disease or chemical contamination, and to an intention to compulsorily acquire the land.

There is some debate about what ‘directly and currently affecting the land’ means. Commentary on this can be found in Sale of Land Victoria by William Rimmer and David Lloyd. What a ‘public authority’ means is discussed in a recent LPLC FAQ.

Section 32E – item 5: building permits

A vendor must disclose particulars of any building permits issued in the previous seven years where there is a dwelling on the land.

Section 32F – item 6: owners corporation

A vendor dealing with owners corporation disclosure may either attach a current owners corporation certificate or provide the information required in such a certificate under section 151(4)(a) of the Owners Corporations Act 2006 (Vic) (OC Act). Either way, the vendor must also attach the owners corporation rules, the prescribed information for purchasers, copies of any resolutions made at the last annual general meeting, and any other prescribed documents under section 151(4)(b). Confirm the client's instructions about owners corporation information in writing.

Where an owners corporation is inactive and the section 32 statement states this, the vendor does not need to include the information above. An inactive owners corporation is described in section 32F(2) to include an owners corporation that has not held an annual general meeting, fixed any fees and has not held any insurance in the previous 15 months.

Warning

Only two lot subdivisions are exempt from the insurance requirements pursuant to section 7 of the OC Act. Any other owners corporation is required to have:

public liability insurance for any common property. See section 60 of the OC Act.

reinstatement and replacement insurance where sections 59 and 61 of the OC Act apply.

Where insurance is obtained the result will be that the owners corporation no longer qualifies as ‘inactive’ for the purposes of section 32F.

Section 11 of the SLA states that a failure by the vendor to obtain any necessary owners corporation insurance gives a purchaser the right to avoid the contract any time prior to settlement.

For more information on ‘inactive’ owners corporations and the insurance requirements for common property, please refer to the LPLC article below:

• Inactive owners corporations – are they really? The importance of common property insurance before a sale

Section 32G – item 7

Specific disclosure is required where the land is in a ‘contribution area’ as described in section 201RC of the Planning and Environment Act 1987 (Vic). This is generally growth area land zoned for urban use and development. The land in this area will often be affected by a growth areas infrastructure contribution (GAIC) requirement, and it is these details that must be disclosed, including attaching any relevant GAIC certificate(s).

The standard LIV form lists the relevant GAIC information which must be included in the section 32 statement.

Details about the contribution area and GAIC certificates can be found on the State Revenue Office website and apply to land within the municipalities of Cardinia, Casey, Hume, Melton, Mitchell, Whittlesea and Wyndham.

Section 32H – item 8

Only services of electricity, gas, water, sewerage or telephone that are not connected need to be disclosed.

Claims arise every year where a vendor misleads a purchaser as to what services are connected. Most commonly they get the sewerage connection wrong. Many vendors think that if they have a flushing toilet, they have sewerage connected, even if they have a septic tank. You need to clarify that a septic tank does not constitute connection to sewerage and should be disclosed.

Section 32I – items 9 and 10: title documents

Disclosure of certain title documents by attaching them, including a register search statement (title search), the diagram location in that statement identifying the land, certain plans of subdivision, and evidence of the right to sell where the vendor is not registered on title.

Section 32J – item 13: certificates

Information required by the sections above may be provided by attaching a certificate, notice or other document that contains it. Common attachments are planning certificates, land information certificates and water encumbrance certificates.

Preparing a statement well takes attention to detail. As part of due diligence, compare the information the vendor provides against the searches and certificates obtained, for consistency and accuracy. Before the vendor signs, send the vendor a draft of the statement with copies of all searches and certificates, and ask the vendor to read them and confirm in writing whether they are accurate.

• Collect the property information using a client intake checklist, and confirm the vendor's instructions in writing.
• Obtain the standard searches and certificates: title search and plan, planning certificate, land information certificate and water encumbrance certificate.
• Identify any easements, covenants, section 173 agreements and bushfire-prone area status, and annex the documents that describe them.
• Check for owner-builder works and any building permit issued in the previous seven years.
• For an owners corporation, confirm whether it is active and whether the required insurance is in place, and disclose accordingly.
• Check whether the land is in a GAIC contribution area, and annex any GAIC certificate.
• Confirm which services are connected, including whether the property has a septic tank.
• Make sure the correct lot is being sold.
• Compare client instructions against the searches and certificates, then send the draft and attachments to the vendor for written confirmation before signing.
• Use precedents that warn the vendor about the consequences of a defective section 32 statement.
  
  

For more, use or adapt LPLC's Key risk checklist: sale of land questions for the vendor.

Further reading

Simon Libbis, ‘Conveyancing in Victoria’ 10^th edition, published by Hybrid Publishers

William Rimmer and David Lloyd, ‘Sale of Land Act Victoria’ 2^nd edition, published by Thomson Reuters